Indian Chief Takes On Venerable Harley Motorcycle

By: Investor's Business Daily

Posted: 7/22/2013 5:54:00 PM

Referenced Stocks: HOG;PII

How do you jump-start growth in a 112-year-old motorcycle
brand that's been operating in low gear?

AskPolaris Industries (
PII
) CEO Scott Wine, and he'll tell you all about it. Wine oversaw
the power-sports giant's 2011 buyout of Indian Motorcycle, which
suffered from a long history of struggles ranging from changing
owners to bankruptcies.

Now, after spending 2-1/2 years re-engineering and overhauling
the Indian bikes and their engines, Polaris will reveal the
fruits of its labor with the launch of the all-new 2014 Indian
Chief heavyweight motorcycle at the 73rd annual Sturgis
Motorcycle Rally in Sturgis, S.D., Aug. 3.

The redesigned Indian Chief, the flagship of the iconic
brand's product line, is powered by Polaris' new Thunder Stroke
111 V-Twin engine. The bike will be available at a starting price
of $18,999.

Chasing Harley

Polaris already has a strong position in the motorcycle market
with its Victory brand, which is the world's No. 2 seller of the
heavyweight motorcycles behind kingpinHarley-Davidson (
HOG
). By acquiring Indian, Wine saw the opportunity to become a
major player in the space, where Victory has a low-single-digit
market share.

"We realized that the two brands together would give us a
formidable motorcycle business," Wine told IBD in an interview
prior to the launch.

He sees the Indian Chief as a product that will rev up
Polaris' position in the motorcycle space and help it better
compete with Harley-Davidson.

Harley-Davidson, says Wine, is a "formidable competitor" with
more than 80% of the market. But it has not had any competition
from an "iconic" brand in the industry. That's where the new
Indian Chief comes in. Polaris took what it's learned from
building the Victory brand from the ground up and applied it to
developing the Indian Chief.

"The bike will be fantastic," said Wine. "You have an iconic
brand with the most powerful engine going into a heavyweight
motorcycle."

Wine wouldn't go into much detail about the new bike
pre-launch. But Polaris, which makes all-terrain vehicles (ATVs),
snowmobiles and motorcycles, has racked up a strong track record
on the product front.

Polaris is the world leader in off-road vehicles with a 40%
market share in side-by-side vehicles, says Wine.

"We win with great products, and we will bring a great product
to this category," he said.

He says the Indian Chief looks beautiful and rides "incredibly
well."

As for the revenue opportunity, over the next three to four
years, Polaris could see $500 million to $1 billion in sales
between the Indian and Victory brands, with much of that coming
from Indian, he says.

Wedbush Securities analyst Rommel Dionisio is upbeat about the
prospects for the Indian brand and the Indian Chief.

Polaris, he says, brought to market very "excellent" product
design and high-quality motorcycles under the Victory brand.

"They're bringing the technology prowess they've developed
over the last several years to new designs they've developed for
Indian," he said. "The big opportunity is the launch of the
Indian Chief. The marketplace has high expectations for them to
make quite a splash with this new entry."

There's strong brand-name recognition with Indian, which has a
good reputation among motorcycle enthusiasts and enjoys a cult
following.

Polaris, he adds, has a strong record of execution with very
"solid performing" motorcycles under the Victory brand.

Meanwhile, Polaris boasts a strong track record with its
current lineup. It's been on a long-running winning streak of
double-digit sales and profit growth.

Analysts polled by Thomson Reuters expect the company to stay
on the fast track when it reports second-quarter results on
Tuesday before the bell. They see earnings rising 13% to $1.11 a
share and expect sales to increase 11% to $838.75 million.

Dionisio says he sees the potential "acceleration" in sales in
the back half of the year amid major product launches in the
third and fourth quarters, including the launch of the Indian
Chief, as well as launches of new off-road vehicles.

Wine says that Polaris had a "decent" first quarter and it has
guided for a "decent" second quarter. But it's guided for a
stronger second half of the year when it will unveil a lineup of
new products.

Analysts expect full-year earnings to rise 19% to $5.23 a
share. They see a 15% jump in 2014.

But taking on Harley-Davidson will be a challenge.

"Harley is a very entrenched competitor in the marketplace
with a loyal global following," said Dionisio.

"The big challenge is to try to take some of the share away
from Harley. That remains to be seen."

He says it's possible that within a year of the launch of the
Indian Chief, it could very well have a revenue run rate
approaching, if not exceeding $100 million annualized.

Wine aims to have 120 to 140 dealers for the Indian Chief by
the end of 2013. He says that could grow to 300 to 400 dealers
over time.

Shares On A Tear

Polaris' stock has been racing ahead, with its shares
currently touching a new all-time high.

Why the run-up in the stock?

The market expects Polaris to launch some major products in
the third and fourth quarters -- off-road vehicles as well as the
Indian Chief, says Dionisio.

Wine says Polaris has several new off-road vehicles coming out
this summer.

Polaris has scored big wins with new products, with 73% to 74%
of revenue typically coming from products introduced in the last
three years, says Wine.